The Physical Pressure Cooker

What we are currently seeing in global equity markets is truly historic. And I’m not talking “internet mania” historic; but worse yet, a blaring precursor of hyperinflation. In recent weeks, I’ve noted how Venezuela has been a “Zimbabwe-like” poster child of how monetary inflation can destroy a nation; and now, the same “fiat cancer” is starting to spread. To wit, the Caracas stock exchange is up nearly 500% year-to-date – whilst its “massaged” Consumer Price Index is up an incredible 50%. The Bolivar has been officially devalued by 200% in the past three years – the latest, 32% devaluation in February; resulting in price controls, product shortages, and looting, with Martial Law clearly coming. And thus, the early Weimar-like surge in its stock market; which, by the way, is exactly what happened in Zimbabwe. In both cases, such hyperbolic gains were eventually consumed by inflation; and in my mind, it’s difficult to envision a more obvious “red flag.”

In Japan, where yesterday it was reported that GDP growth “unexpectedly” fell from 0.9% in the second quarter to 0.4% in the third – again, utilizing a negative deflator despite Tokyo being the world’s most expensive city; the stock market has since surged 700 points due to, believe it or not, rising expectations of additional QE. As if the BOJ’s current plan to doublethe money supply in two years – following nine successive, unsuccessful QE failures – isn’t enough. Consequently, the Yen is now back above the 100/dollar level again; and as I wrote six months ago, don’t be surprised if “The Real Yen Bomb – Starts now.”

In Europe, the ECB just lowered its benchmark rate from 0.50% to an even more pathetic 0.25% amidst essentially zero continental GDP growth, record unemployment and bad loans, and a new downgrade of France’s credit rating. The UK is experiencing slightly higher “growth,” but an historic real estate bubble has fostered a powerful inflationary impact on the cost of living. And today, we learned that just €3 billion of LTRO (essentially free) bank bailout loans are being paid back this week, bringing the total returned to less than a third of the more than €1 trillion lent out two years ago. No doubt, the rest of that money is going into the stock market; as for the same reason as in Japan, the growing belief in expanded QE is going mainstream. Just yesterday, an ECB governor called for as much; fueling further a “Japan-like” rally, fueled solely by anticipated “liquidity.” Obviously, the markets could care less about what ECB governors also called for yesterday; that is, an earlier introduction of continental “bail-in” rules.

And then you have the U.S., where yesterday’s earnings miss of Walmart tells you all you need to know of the trajectory of the global economy – per the chart below. And not just Walmart, but other low-end retail chains like Kohl’s, depicting exactly how strained the average American’s budget has become. Even Lockheed Martin announced it was laying off 4,000 workers; an ominous sign indicating just how badly the U.S. needs ongoing wars to generate economic “growth.” And last but not least, Federal, we learned that Federal student loans surpassed the $1 trillion level for the first time – up from $750 billion two years ago; whilst the student loan default rate rocketed up to an all-time high of 12% – from 8% two years ago, when the latest Fed money printing lunacy commenced (i.e., “Operation Twist,” QE3, and QE4). As I edit, by the way, the Empire State Manufacturing Index came in negative for the first time in six months, versus consensus estimates of a strong positive result.

As all of these “horrible headlines” emerged yesterday, the Senate Banking Committee was “Yellen for Moar” – lobbing softball questions to our next Fed Chairman, to which she simply stated that QE has not only been effective, but needs to be continued indefinitely – as clearly, monetizing 70% of all Treasury issuance is not enough!

Better yet, the new “QEeen” believes there is absolutely no bubble-like behaviors occurring in the financial sector – as amidst the lowest Labor Participation rate in 35 years, the S&P 500 achieved an all-time high. And oh yeah, the two sectors hedge funds are now most bullish about are the two most likely to be positively affected by QE; i.e., tech stocks and long-dated Treasury bonds. And in third place; yep, you guessed it – bearish bets on the dollar; as simultaneously, the largest-ever trade deficit with China was reported.

Paper PMs couldn’t help but rise on such news, but of course, were prevented from rising more than 1.0% by a typical Cartel Herald algorithm at 10:00 AM EST; i.e., “Key Attack Time #1” – followed by the 116th appearance of the 2:15 AM suppression algo in the past 128 trading days. Of course, what’s occurring in the physical market is entirely different, as the “pressure cooker” continues to tighten. As discussed above, the hyperinflationary trend is “gaining steam”; and whilst Wall Street, Washington, and the MSM focus your attention on soaring equities, the scant remaining gold and silver supply is rapidly waning. The third quarter mining earnings catastrophe I warned of has come to fruition; and as miners continue to cut capital expenditure plans with reckless abandon, the outlook for physical supply continues to weaken. Moreover, attempts by India’s government to slow gold buying have not only catalyzed the emergence of a thriving black market, but pushed physical premiums to record highs; hitting an incredible 22% yesterday, representing a real price closer to $1,600/oz. than $1,300/oz.

And finally, the coup de grace; as last night alone, COMEX registered inventories lost an incredible 51.6 million ounces, or 8% of the total; in the process, plunging such “deliverable” inventories to a new all-time low of just 587,000 ounces – or just $750 million at current prices.

Hopefully, today’s article helps you see just how compromised the global financial system has become; and conversely, how dire the official attempts to suppress real money, amidst burgeoning hyperinflation – have become. The “physical pressure cooker” will exponentially tighten in the coming years – perhaps, months; and when it blows, the “world as we have known it” will be forever changed. And thus, the big question is – are you prepared?

1 Comment

Willie
on November 18, 2013 at 11:31 am

Andy, “QEeen” Now that’s good. Lightning up a little is always good and I enjoy it.

Thanks for the daily letters.

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